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A Will or Trust and Life Insurance are the first order of
estate planning defense when trying to preserve one’s life work from life’s
unsuspected on-coming forces. Make the decisions for your
heirs now, or the court will make them for you later!
Note: In all cases, when implementing a will
or a trust, legal advice is a must!
Life’s Defensive Moves!
What is Probate?
There exists in all
jurisdictions, in all states, a court called probate. It exists to concern itself with the
administration and distribution of estates.
All fees and expense of your estate
must be paid before your assets can be distributed.
What will happen if you don't have a Will
or Trust or Life Insurance?
Dying without a Will is dying in
testate. If you do not specify through “valid’ Will or Trust who
will receive your property, the laws of the state in which you live
will write a will for you.
They will control and distribute your property to your heirs.
The state’s distribution of your property may have no resemblance to
the one you may have specified had you elected to document your
wishes in a will.
Out-of-state property requires probate proceedings to be held in
that specific state for the property in question.
How are minor children
affected?
What happens if both parents died in a common accident?
If you fail to nominate a guardian of property for your minor
children, the state will appoint a person you might not even know as
their legal property guardian.
By naming a successor trustee for your minors, you make it
unnecessary for the court to appoint a special trustee of the
“property’ of your child. But that is not enough. There is the issue of the guardianship
of the child’s “person”.
Guardianship is also a matter of state law, of which the underlying
universal rule is that a child who is an orphan is a ward of the
court. A parent, by will or trust, has no definite right to
absolutely name a guardian of the child’s “person”. These documents
will, however, at least serve as an indication of your wishes to the
court. This process
will take a good bit of time.
Time, which your minor children may not be able to afford.
A Will
A properly drawn “Will’ is the legal document that
allows you to distribute your property to those you choose. It
allows you to designate beneficiaries to receive specific items from
your estate, and other beneficiaries to receive everything else. If,
for example, you want your house and your car, to go to a certain
person or organization, you designate that person or organization as
the beneficiary of those items. A Will also gives parents of minor
children the chance to nominate a guardian. Again, the court makes
the final decision when appointing a guardian for your children
after your death.
A Trust
A Will comes into play only after you die, but a trust
can benefit you while you are still alive. A living trust for
example, is a trust established during your lifetime. It can be
revocable, which allows for you to make changes. You can transfer
substantially all of your property into your living trust during
your lifetime, and any omitted assets can be transferred into the
trust at the time of death through the use of what is called a
Pour-over Will. You should always make a “Pour-over” Will at the
time that you establish your trust. There are many types of other
trusts arrangements available that you may want to consider.
Some differences between
Wills and Trusts
Both Wills and Trusts are devices, which you can use to
provide for the distribution of your estate upon your death.
Deciding whether a Will or a Trust best fits your needs depends on
your circumstances. A living Trust is a popular alternative to the
traditional Will, but you should weigh the advantages and
disadvantages of each before deciding on one form or the other.
In all cases, legal advice is a must!
What happens at
probate time?
The executor is the person you designate to carry out
your wishes. The executor will present to probate court your
will/trust and an inventory list of both the assets and liabilities
of your estate. The
court will then determine that the document (s) are legal and accept
them for probate. The court will order legal notice to
creditors and interested parties.
The court will hear claims from these parties and rule on them. All
expenses must be paid before distribution can occur.
What Kinds Of Property Avoid Probate!
There are three types
of property that may pass to your heirs without going through the
probate process.
1.
Life insurance that is payable to a named beneficiary.
2.
Property that is jointly owned with
right of survivorship.
3.
Property held in a “living” trust.
What role does
Life Insurance play?
Life insurance policies payable
to a named beneficiary are exempt from probate and in most cases;
the proceeds of the policy are exempt from state and federal income
and inheritance taxes.
However, if a life insurance policy is payable to your estate, it is
subject to probate and all taxes.
Life insurance can also create an estate when there are little or no
other assets in your estate.
It creates immediate cash to the named beneficiary; cash that can be
ear marked to pay creditors upon your death, thus making it
unnecessary for your heirs to sell other property in your estate to
pay these creditors, or to pay other final expenses.
Property that is jointly owned
with right of survivorship:
Most people think and use joint
ownership as a substitute for a will. Joint ownership is often referred to it as “the poor man’s
will.” It is true that
it avoids the delay, expense, and the publicity of probate; however,
in most
cases it creates more problems than it solves.
Not all jointly owned property
is exempt from probate.
A deed showing a husband and wife owns a home jointly, may be deemed
by the court, as “tenants in common.”
Assume the husband dies first. His share of the house would not
automatically pass to his spouse. Its disposition is determined by
his will. If there is
no will, his share will be distributed in accordance with the laws
of the state in which he lives.
Many state laws view it this
way. In a marriage without children, if a man dies in testate, that
is leaving no valid will, only the first $5,000 of his estate my go
to his widow. The
balance of his estate will be shared equally with her deceased
husband’s parents. In the case of a couple with children,
the widow could receive one-third of his estate and the children
could receive the remaining two-thirds.
If their joint ownership of
their family residence is determined to be as “tenants in common,”
his share will go to his wife and children in a proportional amount.
A title with minor children owning part of the home are what
nightmares are made of. As minors, the children, will not be
able to “sign off” in favor of their mother.
Someone will have to apply to the probate court to be appointed the
children’s guardian.
The guardian can then act for the children.
The obvious guardian would be their mother, but in such
circumstances, the propriety of the mother’s, acting as guardian to
turn the children’s property over to her, might be questioned by the
court.
A way to avoid this is by
having the husband and wife hold the property under a survivorship
deed which would provide that, upon the death of one, the property
would revert in its entirety to the survivor, or by making certain
that each of the couple has made a valid will leaving his or her
interest in the property to the other.
Under the survivorship deed
arrangement, there will be no probating; if it passes under a will,
however, the will itself must be probated.
What about banks?
Most couples have joint
checking or savings accounts.
It is not uncommon for banks to block such accounts upon the death
of one of the co-owners.
In some states, only a representative of the probate court can open
safe-deposit-boxes of deceased persons.
This would make it desirable for husband and wife to have separate
boxes.
Property held in a
“living” trust, could be the magic defense!
The magic defense is the
“living” trust, which creates a financial bridge from one generation
to another. When you
set up a living trust, it is created currently, while you are alive,
as opposed to being the instrument of a will after you are gone.
Because you certified that the trust is genuine while you are
living, there is no need for a probate judge or other person to
check to determine whether it is genuine.
All trusts require a trustee.
The trustee of your living trust can be either an institution or an
individual.
The living trust can be either
revocable, you can change its terms, or irrevocable, you cannot
change its terms. The living
trust offers an excellent solution for those persons that would be
benefited if they were relieved of the details of handling
investments or a business which age or ill health may make
burdensome or even impossible.
Establishing a trust during your lifetime allows you the opportunity
to observe the individual or institution, which you have named as
your trustee. It gives you the opportunity to see your will in
action.
If the laws of the sate of your
residence are not to your liking, you can avoid them by setting up a
living trust with an institution in another state whose laws you
find more favorable.
The living trust can completely
eliminate a successful attack on your estate. The publicity of probating a will
invites attack upon the will, while the privacy of a living trust
discourages attack. The
living trust makes the assets of the trust available immediately to
your named heirs.
Author’s note:
The intent of this article by termlifeamerica.com is to
inform and motivate the general public into action.
One should consider only a qualified practicing legal individual or
entity, in the state in which you reside, to establish properly
drawn documents of this type.
Related:
TermLifeAmerica.com-
Lewis Fink is licensed as an
insurance agent offering Life
Insurance in the following states:
Alabama - AL,
Arkansas - AR,
California - CA,
Colorado - CO,
Connecticut - CT,
Delaware - DE, District of Columbia - DC,
Florida - FL,
Georgia - GA,
Idaho - ID,
Illinois - IL,
Indiana - IN,
Iowa - IA,
Kansas - KS,
Kentucky - KY,
Louisiana - LA,
Maine - ME,
Maryland - MD,
Massachusetts - MA,
Michigan - MI,
Mississippi - MS,
Missouri - MO,
Montana - MT,
Nebraska - NE,
New Mexico - NM,
New Jersey - NJ,
New York - NY,
North Carolina - NC,
North Dakota - ND,
Ohio - OH,
Oklahoma - OK,
Pennsylvania - PA,
Rhode Island - RI,
South Carolina - SC,
South Dakota - SD,
Tennessee - TN,
Texas - TX,
Utah - UT,
Vermont - VT,
Virginia - VA, and
Wisconsin - WI.
Not all insurance products from all insurance companies are available in
all states.
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